What are Agreed Upon Procedures?

Definition: Agreed upon procedures engagement is a job where the company gives the other hired auditor an agreement stating which tests or processes it is permitted to analyze.

What Does Agreed Upon Procedures Mean?

What is the definition of agreed upon procedures? Auditing is a process that is typically performed on a business periodically to insure certain legal standards and ethically standards are being abided; however, auditing also has standards as well. It serves as a boundary that the hired organization can’t cross when performing evaluations it is an agreement between the original company and any third parties to not do any actions that weren’t agreed upon.

Let’s look at an example.

Example

Let’s say, Biop, a company that delivers pharmaceutical goods to senior citizens and elderly people’s door has been getting complaints about in accurate delivery times. Before the issue progress, the transportation manager and specialists hires an auditing team to discover the root of the issue in order to make arrival times more accurate.

When Mark, the transportation executive, meets with the auditing company, he had his attorney draft an agreement that specifies the exact procedures the auditors are allowed to perform. He wants to avoid unnecessary or sensitive information from being gathered and compromised. He says that they are allowed to inspect the truck efficiencies, the system that calculates the distance from pick-up areas to drop-off locations, and how long it takes all shipments to be prepared for shipment. Any other procedures performed outside of the engagement will be considered a breach of contract and may result in legal action. The engagement is only binding if all parties involved agree to the terms, these are usually not negotiable and set clear boundaries for the auditing team to facilitate in.

If the problem is still not found, another engagement may be drafted to inspect other possible inaccuracies but rarely will corporations allowing voluntary auditing to commence without one.

Summary Definition

Define Agreed Upon Procedures: Agreed-upon procedures engagement means the service that company management and auditors approve before the services are rendered.